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Understanding human capital

The concept of human capital is not new. The World Economic Forum, for example, produces a global human capital report providing a comprehensive overview of nations' human capital using a Human Capital Index of more than 50 measures based around four pillars: education; health and wellness; workforce and employment; and the enabling environment. The report provides a broad range of contextual factors for understanding human capital and provides links between human capital and national economic performance.6

The use of the concept of human capital in business is recent and reflects an evolution in thinking about how employees contribute to business outcomes—from the human resources' approach where employees are considered a ‘cost’, to an approach where employees are considered an ‘asset’.7 This change in view is summarised by Andrew Mayo in Table 10.1.8

Table 10.1 Comparison of the human resources and human capital views of employees

Human resource view

Human capital view

Source: Adapted from Mayo 2008

Employees are costs

Employees are assets with value

Assess headcount

Count diverse individuals

Employees are a labour resource

Employees are value creating

Employees need regulation

Employees need guidance

Employees need management

Employees need objectives

Employees need satisfaction

Employees need engagement

The inherent challenges in managing the workforce as human capital are twofold: identifying and securing human capital that has value for the organisation; and optimising the use of human capital so it is realised as high organisational performance.

Connect with APSC

The Australian Public Service Commission (APSC) is a central agency within the Prime Minister and Cabinet portfolio. The Commission supports two statutory office holders: the Australian Public Service Commissioner - who is also agency head - and the Merit Protection Commissioner. Their functions are set out in sections 41(1) and 50(1), respectively, of the Public Service Act 1999.